Best Financing Options for Multifamily Apartment Property Investors

Multifamily properties are some of the best ways to gain steady income, especially for first-time property investors. Of course, like any real-estate venture, you need to make sure you secure financing. For first-time investors, it can be difficult to figure out where to start. Especially if you’re only used to residential real estate investment loans.

It’s important that you’re not just going with any financing option that presents itself. Securing long-term financing is a decision that shouldn’t be made lightly, so make sure you consider every angle before settling on a lender. To get a good primer on how to get a loan for real estate investment and how to choose the right one, keep reading.

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What are the Different Loan Types?

First, you have to understand the different types of real estate investment loan options out there. Each option will have its own benefits, and its own set of disadvantages. Which one is best for you will depend on your individual circumstances and what you’re planning on investing in. Let’s take a look at each of these options below:

Bank Loan

Many people’s first instinct for a real estate loan is to head to their bank and see what kind of rate they can get. While bank loans can occasionally
be a good way to go, they also tend to have strict terms. Bank loans typically require you to use your assets as collateral, meaning they can go after more than just your property if you default. That being said, sometimes bank loans have favorable loan structures or pricing, so it can be a good option depending on what you’re able to get.

FHA Loan

FHA loans are government insured and are definitely a popular option for many real estate investment loans. Typically, FHA loans have long, favorable term-lengths, low interest rates, and high levels of leverage. Also, if you default the only recourse is the property itself, not additional assets.

Of course, FHA loans aren’t perfect. They can take a long time to approve, making it hard to be swift and jump on new investment opportunities. They can also have complicated requirements. An easy remedy to this is to work with a lender who knows how to navigate these loans. This makes the process go much faster.

Personal Loan

You could always consider a personal loan for real estate investment, especially if you have great credit. Personal loans are unsecured, so they can’t go after your assets, and they can have flexible and favorable conditions. Of course, if your credit is less than great, you could end up with high-interest rates and high penalties.

Agency Loans

Fannie Mae and Freddie Mac loans are a popular option for multifamily financing. They often have high leverage levels and low interest rates. They also offer a wide variety of loan terms that can work for various different investing scenarios. These loans are definitely worth considering, but keep in mind that they don’t offer loans directly to borrowers. In order to obtain an agency loan, you’ll need to work with a lender who operates as a middle-man between you and the agency.

Bridge Loans

Bridge loans aren’t meant to finance your entire investment, but they’re useful when you’re waiting for long-term financing to be improved. These are often combined with FHA or agency loans to act as a bridge between acquiring your property and waiting for your more permanent loan to come through. Of course, this means they have short terms and high interest rates, but the amount you take out will obviously be much smaller.

VA Loans
VA loans are definitely worth looking into if you’ve served in the military. These have some of the most favorable loan terms out there. With a VA loan, you can invest in properties without a down payment and fund 100% of your property. Also, there’s no minimum credit score requirement and no need for private mortgage insurance. Those are just a few of the primary benefits of VA loans.

How Do I Get a Commercial Loan?

If you’re wanting to get a commercial loan to buy or renovate a property, you’ll need to go through the application process and meet the requirements. In many cases, commercial loans also require the property to be owner-occupied, so make sure you keep this in mind while weighing your options.

What are the Requirements?

There are several requirements that will need to be met to get any kind of commercial property loan. The requirements will likely include:

Business Credit – Your business has a credit score, and it will typically need to be considered when applying for a commercial loan.
Business Finances – You’ll also need to provide information about your businesses finances and prove your cash flow. This assures the lender that you’ll be able to pay off your loan.
Personal Finance – Your personal finances will also need to be looked at.

These are just a few of the requirements you might expect. It really depends on the property you’re getting and the type of loan you want, but it’s always good to look into the requirements so you know what to expect.

What if I Don’t Get Approved?

If you don’t get approved for your loan, you have a couple of options. You could either make some adjustments to get you to a point where you’d be approved or you can look at some alternative ways to finance. Let’s talk about the first option.

Here are some things you can do to make sure you’re approved next time:

Pay off more of your debts
Get a cosigner
Find investors to partner with
Try applying for a loan with a smaller or less expensive property
Find more collateral to make the loan more favorable for the lender
Save for a larger down payment

Of course, if you’d like you could also try some more creative ways to finance your investment.

Creative Ways to Finance Your Multifamily Real Estate Investment

When all else fails, you definitely have some alternative ways to finance real estate investment that you can seek. Master lease options and owner financing are both worth considering.

Master Lease Option (MLO)

With a Master Lease Option, you don’t have to actually buy a multi-family property outright. With this type of financing, you take over all of the primary duties of ownership from the actual owner of the property and pay them a monthly fee. In this arrangement, you would take care of collecting rent, maintenance for the property, and anything else. Meanwhile, you would pay a monthly fee to the owner of the property and pocket the difference in cash flow. You would also have an agreement to buy the property at a certain point in time. This lets you finance a multi-family investment with very little upfront costs.

Owner Financing

Another creative option is owner financing. In this arrangement, the seller of the property gives you the loan to pay for the property. This removes intermediaries from the equation and gets rid of things like closing costs. IN this arrangement, loan terms are going to be more favorable for the owner, but it’s easier for the buyer to secure their financing.

Schedule a Call with One of Our Team Members

As you can see, all of the different ways to finance real estate investment property loans can get pretty tricky. At Jake and Gino, we can help guide you on your way to finding success in the world of multi-family property investing and getting a loan for real estate investment. Schedule a call with one of our team members today to learn more.